Mercedes-Benz Charts Aggressive Turnaround Amid Profit Plunge

Mercedes-Benz launches a three-pillar strategy with cost cuts and a major model offensive to counter a 40% profit decline and challenges in China, while maintaining shareholder returns.

Facing a nearly halved net profit and significant headwinds in its crucial Chinese market, Mercedes-Benz has unveiled a stringent recovery strategy. The Stuttgart-based automaker's response to a weak 2025 fiscal year includes a three-pronged plan, spanning from plant closures to the most extensive model offensive in the company's history. A surprisingly modest dividend cut signals management's confidence in a swift rebound.

Shareholder Returns Maintained Despite Operational Setback

In a notable commitment to its investors, the company intends to pay a dividend of €3.50 per share. This figure, while down from the previous year's €3.50, exceeds the more pessimistic forecasts from market analysts. Share prices are further supported by an ongoing share buyback program of up to €2 billion. Interestingly, major shareholders Beijing Automotive and Geely are participating proportionally in these repurchases, a move designed to keep their voting rights stakes deliberately below the 10% threshold. A robust net liquidity position of approximately €31 billion provides the financial flexibility for these shareholder-focused actions and the broader restructuring.

Profitability Squeeze and Market Challenges

The core of the crisis is a sharp 40% decline in the adjusted operating profit (EBIT) to €8.2 billion for 2025. This was driven primarily by intense price competition with Chinese electric vehicle manufacturers, compounded by tariff burdens of $1.2 billion. In China, its most important single market, unit sales fell by 19%. Consequently, the return on sales for the core business was compressed to a slender 5.0%. Investor skepticism persists, with the share price closing at €55.05 yesterday, reflecting a year-to-date loss of over 10%.

A Three-Pillar Strategy for Recovery

To restore profitability, management is implementing decisive measures. Beyond already-realized cost savings of €3.6 billion, the joint venture plant in Aguascalientes, Mexico, will be shuttered by May, removing roughly 100,000 units from production capacity. Concurrently, Mercedes-Benz is accelerating local production in Asia, targeting over 80% of vehicles sold in China to be manufactured locally by mid-2026. This cost-cutting drive is paired with a major product push: more than 40 new models are slated for launch within the next three years.

Looking ahead, management anticipates a significant year-on-year improvement in operating results for the current fiscal year. The effectiveness of the localization strategy and cost reductions will face an early test on April 29, 2026, when the group releases its first-quarter figures. Preceding that, a virtual Annual General Meeting on April 16 will see the formal adoption of the proposed dividend.